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Cokie & Steven V. Roberts: The triumph of TARP

Posted on Mar 4, 2014 at 9:48 a.m.

One of our favorite political stories took place during Barry Goldwater's presidential campaign in 1964. A friend was standing outside a Goldwater rally when a woman burst from the room, tears streaming down her face.

"Stop them!" he heard her say. "Stop those reporters! They're writing down every word he's saying!"

We were reminded of that tale by the curious case of Matt Bevin, a Tea Party favorite challenging Sen. Mitch McConnell of Kentucky in a Republican primary this spring. In 2008, Bevin was president of Veracity Funds, a money management company, and he signed a letter to his investors praising TARP, the massive federal effort to rescue banks, auto companies and other victims of the economic implosion.

That letter, unearthed by Politico, reassured Bevin's clients that "positive developments" like TARP, led by the government, "should help to stabilize asset prices and help to ease liquidity constraints in the financial system." The letter added a sharp warning: "Don't call it a bailout."

That message to Bevin's investors was prescient. TARP worked well, and McConnell is right to boast that he voted for it.

But Bevin has a problem. The gospel according to the Tea Party insists that TARP was a bailout, and a failed bailout at that. So he has disowned the letter, saying it was written by an underling. In fact, Bevin's camp has accused Politico and McConnell of mounting a "smear" campaign because they insist on quoting his own words back to him.

Stop those reporters!

Here's how crazy American politics has become, at least in a Republican Party whipsawed by the Tea Party. A candidate disavows a letter he wrote in 2008 that was clearly accurate, a letter endorsing a program that was supported by 34 Republican senators and 91 Republican House members, and signed by Republican President George W. Bush. Today that candidate embraces a position that is clearly wrong, just to satisfy the ideological prejudices of his core supporters.

Part of the problem is that incessant attacks from the anti-government right (and the anti-corporate left) have deeply distorted TARP's record. Economist Douglas Elliott of the Brookings Institution calls TARP "the best large federal program to be despised by the public."

Economic columnist Robert Samuelson of the Washington Post summed up the evidence this way: "One lesson of the financial crisis is this: When the entire financial system succumbs to panic, only the government is powerful enough to prevent a complete collapse. Panics signify the triumph of fear. TARP was part of the process by which fear was overcome. It wasn't the only part, but it was an essential part."

The accuracy of that assessment was reinforced just last week when Fannie Mae, the giant agency that guarantees home mortgages, announced it was returning $7.2 billion to the Treasury. Fannie and its cousin Freddie Mac received $187 billion in TARP funds (out of a total outlay of $609 billion), and by next month, they will have paid back every dollar.

Their turnaround is not unusual. ProPublica, a public interest journalism center, calculates that as of mid-February, the U.S. Treasury had received back $621 billion in TARP-related funds. That's a profit of $12 billion with more to come.

Of course, not every element of TARP has worked well. A program to help homeowners stave off foreclosures made little impact. And there are legitimate fears that the whole effort sets a bad precedent and could encourage banks and other entities to take poor risks in the future. A special inspector general calls this a "heads I win, tails the government bails me out" mentality.

On balance, however, TARP has been a sizeable success, and not just to the Treasury. Hundreds of thousands of jobs were saved in the auto industry alone. Without federal intervention, says Elliott, "the recession we had would have been substantially worse; millions of people would have been out of work."

But the tea party refuses to accept those facts and demands fealty to its own distorted version of reality. That's why Mitt Romney felt compelled to say in 2012 that TARP was "the wrong way to go," a misguided statement that helped contribute to his loss in key states like Ohio and Michigan.

Now Matt Bevin is facing a similar problem. As a banker, as a hard-headed businessman, he described the world as it is. Today, as a hard-line candidate, he feels compelled to abandon that view and place scripture ahead of statistics. As Romney learned, that's never a good idea.